If an LLC has only one member and is classified as an entity
disregarded as separate from its owner, its income, deductions, gains, losses,
and credits are reported on the owner's income tax return. For example, if the
owner of the LLC is an individual, the LLC's income and expenses would be
reported on the following schedules filed with the owner's Form 1040:

A single-member LLC that is classified as a disregarded entity
for income tax purposes is treated as a separate entity for purposes of
employment tax and certain excise taxes. For wages paid after January 1, 2009,
the single-member LLC is required to use its name and employer identification
number (EIN) for reporting and payment of employment taxes. A single-member LLC
is also required to use its name and EIN to register for excise tax activities
on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and
11-C; and claim any refunds, credits, and payments on Form 8849. See the
employment and excise tax returns for more information.

An individual owner of a single-member LLC classified as a disregarded
entity is not an employee of the LLC. Instead, the owner is subject to tax on
the net earnings from self-employment of the LLC which is treated in the same
manner as a sole-proprietorship.

LLC is a disregarded entity owned by Irene. LLC has three employees
(Kent, Patricia, and Tex) and pays wages. LLC is treated as an entity separate
from its owner for purposes of employment taxes. For the wages paid to Kent,
Patricia, and Tex, LLC is liable for income tax withholding, Federal Insurance
Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes.
In addition, LLC must file under its name and EIN the applicable employment tax
returns; make timely employment tax deposits; and file with the Social Security
Administration and furnish to LLC's employees (Kent, Patricia, and Tex) Forms
W-2, Wage and Tax Statement. Irene is self-employed for purposes of the
self-employment tax. Thus, Irene is subject to self-employment tax on her net
earnings from self-employment with respect to LLC's activities. Irene is not an
employee of LLC for purposes of employment taxes. Because LLC is treated as a
sole proprietorship of Irene for income tax purposes, Irene must report the
income and expenses from LLC on her Schedule C. Irene will figure the tax due on
her net earnings from self-employment on Schedule SE. Irene can also deduct
one-half of her self-employment tax on line 27 of her Form 1040.

For all income tax purposes, a single-member LLC classified as
a disregarded entity must use the owner's social security number (SSN) or EIN.
This includes all information returns and reporting related to income tax. For
example, if a disregarded entity LLC that is owned by an individual is required
to provide a Form W-9, Request for Taxpayer Identification Number and
Certification, the LLC must provide the owner's SSN or EIN, not the LLC's EIN.

However, most new single-member LLCs classified as a disregarded
entity will need to obtain an EIN for the LLC. An LLC will need an EIN if it has
any employees or if it will be required to file any of the excise tax forms
listed above (see
Employment tax and certain excise taxes
earlier). See Form SS-4, Application for Employer Identification Number, for
information on applying for an EIN.

If a single-member LLC classified as a disregarded entity for
income tax purposes acquires an additional member, it becomes a partnership
under Regulations section 301.7701-3(f)(2). However, if the LLC has made an
election to be classified as a corporation (discussed later) and that elective
classification is in effect at the time of the change in membership, the default
classification as a partnership will not apply.

Other tax consequences of a change in membership, such as recognition
of gain or loss, are determined by the transactions through which an interest in
the LLC is acquired or disposed of. If a disregarded entity that becomes a
partnership as a result of an increase in the number of members makes an
election to be classified as a corporation, the applicable deemed transactions
discussed in
Subsequent Elections, later, apply.

Bart, who is not related to Alain, buys 50% of Alain's interest
in an LLC that is a disregarded entity for $5,000. Alain does not contribute any
portion of the $5,000 to the LLC. Alain and Bart continue to operate the
business of the LLC as co-owners of the LLC. The LLC is converted to a
partnership when the new member, Bart, buys an interest in the disregarded
entity from the owner, Alain. Bart's buying a 50% interest in Alain's ownership
interest in the LLC is treated as Bart's buying a 50% interest in each of the
LLC's assets, which are treated as owned directly by Alain for federal income
tax purposes. Immediately thereafter, Alain and Bart are treated as contributing
their respective interests in those assets to a partnership in exchange for
ownership interests in the partnership. Alain recognizes gain or loss from the
deemed sale to Bart of the 50% interest in the assets. Neither Alain nor Bart
recognizes any gain or loss as a result of the deemed contribution of the assets
to the partnership.

Charles, who is not related to Danielle, contributes $10,000
to an LLC owned by Danielle for a 50% ownership interest in the LLC. The LLC
uses all of the contributed cash in its business. Charles and Danielle continue
to operate the business of the LLC as co-owners of the LLC. The LLC is converted
from a disregarded entity to a partnership when Charles contributes cash to the
LLC. Charles's contribution is treated as a contribution to a partnership in
exchange for an ownership interest in the partnership. Danielle is treated as
contributing all of the assets of the LLC to the partnership in exchange for a
partnership interest. Neither Charles nor Danielle recognizes gain or loss as a
result of the conversion of the disregarded entity to a partnership.